April 11 (Bloomberg) -- Billionaire Paul Singer has denied
he owns credit-default swaps that would allow him to profit if
Argentina shirks a court order requiring it pay him in full and
halts payments. That hasn’t stopped Argentina from repeating the
claim as its bond risk soars to the highest in the world.

Economy Minister Hernan Lorenzino said March 30 that the
“sole” purpose of Singer’s legal dispute with Argentina over
its record $95 billion default in 2001 is to make money from his
swap holdings, a month after his NML Capital Ltd. fund said in a
court hearing it doesn’t own the contracts. Argentina and
holders of restructured bonds have also said in filings in the
U.S. Court of Appeals in New York that Singer’s ownership of
swaps is an incentive for his fund to pursue litigation that may
trigger a default or an increase in the contracts’ prices.

Argentina has accused Singer of owning the contracts at
least three times to show the court he has motives other than
full repayment on his holdings. Anna Gelpern, a law professor at
American University, says the argument will fail to sway the
court because Argentina can’t prove Singer owns the swaps or
that the contracts represent a conflict of interest even if he
did. The cost of protecting Argentine debt against losses for
five years has doubled to 22.93 percent since a court ruled the
nation must pay defaulted-debt holders including Singer Oct. 26.

‘Red Herring’

“These allegations are to suggest that NML isn’t entitled
to equitable remedy because they are engaged in some kind of
foul play,” Gelpern said in a telephone interview from
Washington. “The idea being that judges won’t rule in favor of
a party with unclean hands. It’s only a red herring because they
would have to do a lot of fact finding and I don’t think they’ll
go there. It would take a lot to educate the court on this and
its relevance to the case.”

“I don’t know that that’s true,” Olson said. “I’m
informed it isn’t true. But if it was true, it would be utterly
irrelevant.”

Press officials at the economy ministry referred Bloomberg
News to Lorenzino’s latest statements when asked to comment on
NML’s alleged holdings of the swaps.

‘Attacking Argentina’

“The sole purpose of this -- besides attacking Argentina
politically -- is another business that has nothing to do with
the country, and has already been denounced by the president,
the issue of derivatives, default insurance” in which “the
vulture funds are involved,” Lorenzino said March 30.

Argentina also raised the issue in a March 29 court filing
in which it proposed a plan to pay holders of defaulted debt.

“NML is also reportedly seeking to gain from the threat
that the injunctions pose to Argentina’s debt service,”
according the filing.

The cost to protect against Argentine debt with five-year
swaps soared to as high as 3,379 basis points, or 33.79 percent,
after the Feb. 27 hearing. It fell 84 basis points yesterday to
2,293, implying an 81 percent probability of default. Argentina
is more likely to renege on payments than any country in the
world, according to data compiled by CMA Ltd.

Won’t Pay

A swaps payout may be triggered if Argentina fails to pay
any principal or interest on a restructured security for more
than 30 days after payment is due, according to International
Swaps & Derivatives Association.

Elliott Management is a member of the ISDA committee that
determines if a default is triggered, according to the
association’s website.

This is a “pretty severe conflict of interest,” Pooler
said in the Feb. 27 hearing.

On Nov. 20, Lorenzino also said that NML’s seat on the
committee increases its conflict of interest in the case.

Jonathan Blackman, an attorney for the South American
nation, on Feb. 27 told a three-judge appeals panel in New York
that Argentina would default on its restructured bonds if it’s
forced to pay the holders of the defaulted debt.

NML owned swaps protecting $100 million of debt, exchange
bondholders including BlackRock Inc. and Gramercy Funds
Management LLC said in a Nov. 16 filing, citing arguments
submitted in court by New York University law professor Stephen
Choi, who refers to an article by newspaper Ambito Financiero.

An investor who held five-year swaps protecting $100
million of bonds would have made a profit of $34.7 million in
less than five months as the upfront cost to buy the contracts
rose to $52.4 million yesterday from $17.7 million on Oct. 25,
the day before the U.S. court ruled Argentina must repay
creditors including Singer, according to Bloomberg calculations.

The net notional amount of Argentine swaps was $1.4 billion
as of April 5, according to Depositary Trust & Clearing Co. That
covers only about 14 percent of the country’s outstanding
restructured dollar bonds.

Roberto Lavagna, a former Economy Minister from 2002 to
2005 who was in charge of the country’s first debt
restructuring, says that if NML owns the swaps, it’s seeking to
profit through improper methods.

“The court dismissed this because NML has complete liberty
of investing in CDS,” Almeyra said in a telephone interview
from Miami. “They probably are covered and made money with
their position. There’s nothing wrong with that.”